Set a Marketing Budget From Scratch in 5 Easy Steps

Would you rather set your annual marketing budget or get a root canal?

If you're like me, it can almost feel like a toss-up. Not everyone gets a "rush" from swimming in spreadsheets and numbers --- but there's good news for the rest of us! You don't to have an accounting degree or fall in love with business finance to set a results-driven marketing budget that sets a clear path for sustainable growth.

In this post we're going to start with some practical questions, use a couple rules of thumb, avoid discounting of-the-wall channels, and tie everything together by basing our marketing spend off our revenue goal.

1) Benchmark your revenue to start with the end in mind

It's critical to nail down an accurate picture of your business' revenue to set the right goals. If you overshoot (or underestimate) your actual numbers, any marketing goals you set will be on shaky ground.

The first thing that you're going to need to check is just how much revenue that you're actually making. Make sure that you have a solid baseline for where you're at. So this will probably involve a conversation with the person that's most intimate with the numbers at your company.

A solid revenue number can also provide a useful proxy to gauge your company's "helpfulness." The way I see it: A business' goal is not to make money. It's actually to help people.

Making money is the byproduct of successfully helping people solve difficult, painful problems.

2) Are you a scrappy upstart or an established contender?

Your business is either attempting to gain a foothold in the market or maintain your existing position. Which categorizes your situation?

Established contenders typically boast a well-established customer base and long-running track record in their industries.

These would be people who have been in the market for a while. People know what your name is. You are the entrenched competition. Not to say that you're the "Death Star" or anything but you've been around for a while.

You're not trying to introduce a new product. You're not trying to break into a new market. You're not trying to find your first customers. You already have customers that have been with you for months and years and however long and you're seeking to scale that system.

Do customers consistently recognize your brand or marketing before they talk to your team? From real estate to manufacturing, the reputations of dominant players tend to stick in their customers' minds, which makes it tough for newcomers to wrestle attention away.

But, what does a company in the "scrappy upstart" camp look like?

These are when you're trying to break into a market you're trying to find new customers. You're trying to grow rapidly and really the goal there is is growth and finding new customers and getting your name out there so that people start to know who you are.

Newer companies don't usually have the brand-name recognition, tsunami of traffic, and steady stream of leads that established players take for granted. Scrappy upstarts work overtime to discover new customers, spread awareness, and spin-up new processes on the fly to nurture leads.

3) Use these rule-of-thumb metrics as a jumping-off point

Every business is different. Context is king and the exact numbers you pick for your quarterly and annual marketing budget depend on your unique situation.

That being said... There are some commonly accepted rules of thumb that can help you with some back-of-the-envelope planning.

If you are a new player looking for aggressive growth and trying to break into market between 12 percent and 20 percent is kind of the commonly used rule of thumb for how much you should be spending on your market and that's because you're rapidly growing. You're trying to build a brand and have people recognize you and you're trying to find the channels and scale the channels that are actually bringing you in the ads and customers.

Simply put, most businesses spend more aggressively while building their brand and finding sustainable sources for their ideal customers. It's not uncommon to see up to 20% of revenue reinvested into finding more customers for rapid scaling.

The story changes when you're evaluating budget as a larger, established company.

First off, your budget is going to be bigger overall. So, it doesn't have to be quite as much of a percentage and you're an established player so you are maintaining your dominance rather than trying to you know sort of become king of the hill so to speak.

So you're really going to be spending more in the realm of 6 to 12 percent and that's because you're really focusing on systemized and what's working. Scaling what's working going deeper with customers and really maintaining those relationships rather than just crazy growth in most cases.

While scrappy upstarts play offense with their budgets, established contenders play defense. Established budgets seek to maintain deep relationships with customers and systemize what's already working rather than chasing down aggressive growth goals.

4) Intentionally "waste" at least 10% of your marketing spend

Conventional wisdom blindly dictates that easily measurable marketing channels like Facebook Ads should win out over hard-to-measure channels like podcasts. This idea falls flat for for one key reason: arbitrage.

As an advertising channel becomes simpler for every business to track their return on investment, it also becomes oversaturated, overused, and mind-numbingly average.

If something is perfectly measurable, let's say a Facebook Ad where you can clearly, exactly measure with very little ambiguity how much it costs to get someone to click, to become a lead, to become a customer, and how much their lifetime value is. That is, first off, awesome --- but also the downside of that is everyone else can do that too.

This pattern plays out again and again on repeat across marketing's recent history.

Remember when emails were novel, but hard to use? Customers were opening newsletters from businesses at 80%+. Fast-forward 10 years later and you're lucky to get 1 in 10 customers to actually pick your subject line out of the flaming catastrophe of their inbox.

But what if you had been the first business to leverage email to grow your business?

Everyone would have told you, "It'll never work. It's too difficult. How will you tell if it's working?". It would've been risky, but.... You would've won big-time.

Don't shy away entirely from up-and-coming marketing channels that feel murky, unclear, and difficult-to-track. Instead, set aside a slice of your budget to make calculated bets so you have a shot at leveraging the next "email"-like channel on the ground floor.

5) Start from the bottom-up to set ROI-based goals grounded in reality

It's easy to take a flat percentage of revenue, throw some marketing channels on a spreadsheet, divide your big number a few times, then throw in the towel on your marketing budget.

The problem? This is a terrible strategy for actually ensuring your marketing budget and goals are directly tied to your revenue growth.

Instead, consider a bottom-up approach by starting with your revenue and sales goals. Once you understand how many sales you need to make, you can back your way up to specify how many leads you'll need to convert to make those sales.

Armed with reliable revenue, sales, and lead-generation goals --- setting goals for your website traffic and other marketing channels becomes dramatically more simple. If 1 in 10 strangers you tell about your product or service will become a lead, you simply need to 10x your lead generation goal to set your traffic benchmark.

Not too painful, right?

Take Control Of Your Budget Once and For All

"Budgeting" doesn't inspire warm, fuzzy feelings of pure delight for most business owners. That doesn't mean you can't squeeze every ounce of value out of the process, though!

You're now armed with everything you need to rapidly estimate, refine, and set concrete goals around your marketing budget.

Even better, you'll have your own marketing "mad-science" experiment running on that 10% for hard-to-measure channels (that just might give you an undeniable edge over narrow-minded competitors.)

Published on February 18, 2018.

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